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Subsequent’s (LSE: NXT) share value is buying and selling round a 12-month excessive. This follows a achieve of 30% from its 25 July 12-month traded low of £86.03.
That stated, it’s largely irrelevant to my funding selections how a lot a share value has gone up or down. The important thing issue I would like in shares I’m shopping for for value good points is whether or not they have worth in them.
To see if that is true for Subsequent shares, I seemed rigorously at its enterprise and ran some key numbers.
How does the enterprise look in the intervening time?
The agency’s full-year 2024/25 outcomes launched on 27 March noticed revenue earlier than tax break the £1bn barrier for the primary time. Extra particularly, it rose 10.1% yr on yr to £1.011bn. This drove up pre-tax earnings per share by 11.6%, to 845.2p.
All of this got here after an 8.2% improve in gross sales over the monetary yr, to £6.321bn. A lot of this resulted from the agency’s use of abroad third-party distribution networks. This has seen a 350% improve in gross sales of Subsequent branded merchandise by means of worldwide web sites during the last 10 years.
Additionally very important right here has been that its on-line platform sells merchandise that aren’t completely Subsequent’s. In truth, 42% of the agency’s on-line gross sales within the UK aren’t Subsequent branded merchandise. This has allowed it to construct a now very worthwhile trend and homewares aggregation platform.
Consequently, Subsequent upgraded its gross sales steerage for 2025/26 to five% from 3.5%. It did the identical for its pre-tax revenue – by 5.4% to £1.066bn.
A threat here’s a surge in the price of dwelling within the UK, which can deter buyer spending. One other is the excessive diploma of competitors in its sector which will squeeze its margins going ahead.
Certainly, analysts forecast annual common earnings progress of a comparatively modest 4.5% to the tip of 2027/28.
So is there worth remaining within the share value?
I feel price-to-earnings is an effective start line to work out whether or not a inventory has any worth left in it. On this Subsequent trades at 17.4 in opposition to a peer common of 12.3. There are very many friends however I chosen Abercrombie & Fitch at 6.8, Frasers Group at 8.9, Marks and Spencer at 14.2, and H&M Group at 19.4.
So, Subsequent appears to be like very overvalued on this comparative measure.
It appears to be like the identical on its 8.3 price-to-book ratio too in comparison with its competitor group common of simply 2.8.
And it additionally appears to be like very overvalued on its price-to-sales ratio of two.2 in opposition to a 0.7 common for its friends.
A clear sweep of comparative overvaluations like this isn’t a very good sign up a inventory for me.
I ran a reduced money movement evaluation to determine what this implies in share value phrases. This reveals Subsequent shares are already at honest worth stage – implying no additional worth stays in them.
My resolution
If Subsequent was a inventory with a dividend yield of seven%+ I’d think about shopping for it. This alone might present a very good return for me on my funding. However its present yield is simply 2.1% — nowhere close to my minimal requirement.
And shopping for a inventory with no worth remaining — and low earnings progress potential — for a possible value achieve is pure playing in my opinion. So, Subsequent just isn’t value my whereas shopping for now.
